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Global Live Events-In Liquidation v. Ja-Tail Enterprises, LLC

United States District Court, C.D. California

May 8, 2014

GLOBAL LIVE EVENTS — IN LIQUIDATION, Plaintiff,
v.
JA-TAIL ENTERPRISES, LLC, et al., Defendants.

ORDER DENYING DEFENDANTS VALENSI ROSE & MICHAEL MORRIS'S MOTION TO STAY DISTRICT COURT PROCEEDINGS [41]

STEPHEN V. WILSON, District Judge.

I. INTRODUCTION

Plaintiff Global Live Events ("GLE") is a United Kingdom limited partnership in liquidation. In 2011, GLE retained defendant Valensi Rose, a Los Angeles law firm, to represent GLE in connection with the production of a Michael Jackson tribute concert in Britain. A retainer agreement was signed on March 1, 2011. Subsequently, GLE entered into a contract with defendant Ja-Tail Enterprises to produce the concert in Cardiff, Wales. (Ja-Tail Enterprises was founded by Michael Jackson's sister La Toya Jackson and defendant Jeffre Phillips.) The concert went forward on October 8, 2011, but shortly thereafter, GLE entered a form of bankruptcy protection under British law.

GLE filed this action on November 7, 2013 against Valensi Rose and its partner Michael Morris, and Ja-Tail and its officer Phillips, alleging breach of fiduciary duty, constructive fraud, money had and received, and fraudulent transfer. Jurisdiction is based on diversity. GLE alleges that Valensi Rose and Morris had several undisclosed conflicts of interest and engaged in a variety of financial transactions to defraud GLE. The Complaint alleges that before entering into the Retainer Agreement, Valensi Rose created a California LLC which they called "GLE LLC" and opened a Chase Bank Account in its name. GLE further alleges that after it transferred roughly $1 million to a Client Trust Account for the purpose of financing expenses related to Valensi Rose's representation, Valensi Rose improperly transferred those funds into the Chase Account, in such a way as to defraud GLE.

In its order of March 20, 2014 ("Arbitration Order") the Court granted in part and denied in part a motion by defendants Valensi Rose and Morris (hereinafter simply "Valensi Rose") to compel arbitration of GLE's claims against them. The retainer agreement contains an arbitration clause applicable to "[a]ny controversy or claim by or against the Firm arising under this letter agreement, or the claimed breach thereof, including but not limited to any claim for malpractice or breach of fidiciary duty." (Arbitration Order at 2.) The Court held that the reference to claims "arising under" the retainer agreement applied to GLE's claim for breach of fiduciary duty, but not to GLE's claims for fraud, money had and received, and fraudulent transfer. ( Id. at 5.) The Court accordingly ordered GLE to submit Claim 1 of its complaint to the Judicial Arbitration and Mediation Services ("JAMS") and stayed judicial proceedings on that claim. The Court scheduled a jury trial for the remaining claims in the complaint for July 15, 2014, and directed that any requests to stay the trial be filed by April 7, 2014. Defendant Valensi Rose then filed the instant motion seeking a stay of further judicial proceedings on Claims 3-5 of the complaint (insofar as they are brought against Valensi Rose) pending the outcome of the arbitration on Claim 1.[1] Defendants Ja-Tail and Phillips did not file any request to stay the trial of the claims against them, nor did they appear in court at the hearing on the motion on May 5, 2014.

On April 17, 2014, after GLE had filed its opposition to Valensi Rose's motion for a stay, Valensi Rose filed a notice of appeal to the Ninth Circuit of the Court's Arbitration Order. Then, in its reply brief on the instant motion, Valensi Rose cited the recently filed appeal as an additional reason that the Court "should stay this action as against Valensi Rose, pending the completion of the arbitration. " (Reply at 3 (emphasis added).) Valensi Rose did not argue, however, that the Court should stay proceedings pending the resolution of the appeal. ( See id. at 1-6.)

At the hearing on this motion on May 5, 2014, Valensi Rose also orally requested that the Court stay proceedings against it pending the outcome of its appeal. GLE opposed this request, citing Murphy v. DirecTV, Inc., No. CV 07-6465 FMC, 2008 WL 8608808 (C.D. Cal. July 1, 2008) in support of its argument that district courts "are not required to automatically stay proceedings upon the appeal of an order denying a motion to compel arbitration, " but instead should exercise their discretion to determine whether a stay is appropriate under the circumstances of the particular case. Id. at *1 (citing Hilton v. Braunskill, 481 U.S. 770, 776 (1987) & Britton v. Co-op Banking Group, 916 F.2d 1405, 1411 (9th Cir. 1990)). Valensi Rose disagreed and offered to provide case citations supporting its argument that its notice of appeal of the Arbitration Order divested this Court of jurisdiction over the claims that are the subject of the appeal. Valensi Rose filed the list of case citations the next day. (Dkt 56.) The cases in this list, however, support precisely the same legal standard described by Judge Cooper in Murphy. See, e.g., Ontiveros v. Zamora, No. CIV S-08-567 LKK, 2013 WL 1785891, at *1-2 (E.D. Cal. Apr. 25, 2013) (citing Hilton, 481 U.S. at 776 & Britton, 916 F.2d at 1412).

II. STAY PENDING ARBITRATION

A. Legal Standard

While the Federal Arbitration Act ("FAA") requires a court to dismiss or stay an arbitrable claim, "the FAA does not give courts express guidance on how to proceed" with respect to remaining non-arbitrable issues. Volkswagen of America, Inc. v. Suds of Peoria, Inc., 474 F.3d 966, 971 (7th Cir. 2007). The Supreme Court has recognized that enforcement of agreements to arbitrate will inevitably result in "piecemeal' litigation." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985). Therefore, "[i]n some cases, ... it may be advisable to stay litigation among the non-arbitrating parties pending the outcome of the arbitration." Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 20 n.23 (1983). "That decision is one left to the district court... as a matter of its discretion to control its docket." Id .; Mediterranean Enters, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1465 (9th Cir. 1983); Leyva v. Certified Grocers of California, Ltd., 593 F.2d 857, 863 (9th Cir. 1979); see generally Landis v. North American Co., 299 U.S. 248, 254-55 (1936) ("How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.").

Some courts have reasoned that staying proceedings on the nonarbitrable claims is only appropriate "where the arbitrable claims predominate, or where the outcome of the nonarbitrable claims will depend upon the arbitrator's decision.'" United Commc'ns Hub, Inc. v. Qwest Commc'ns, Inc., 46 F.Appx. 412, 415 (9th Cir. 2002) (unpublished) (quoting Simitar Entm't, Inc. v. Silva Entm't, Inc., 44 F.Supp.2d 986, 997 (D. Minn. 1999)); see also Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 856 (2d Cir. 1987) ("Broad stay orders are particularly appropriate if the arbitrable claims predominate the lawsuit and the nonarbitrable claims are of questionable merit."). There may also be "reasons for avoiding a duplication of effort in trying simultaneously, or even successively, the issues presented in [the arbitrable] claim and in [the non-arbitrable] claim." United States ex rel. Newton v. Neumann Caribbean Int'l, Ltd., 750 F.2d 1422, 1427 (9th Cir. 1985). Nevertheless, unless it is clear in advance that the outcome of the arbitration will render further judicial proceedings unnecessary, the desire to avoid a duplication of effort does not dictate which proceeding should go first. Cf. id. ("[I]t was up to the district judge to determine which of the two claims should be first handled.") A court may prefer to allow the arbitration to proceed first where "the type of controversy... involved seems one well-suited to the informal, and often expeditious, proceedings which generally characterize arbitration." Id. In analyzing the relative efficiency of the available options, a court should consider the relationship between the arbitrable and the nonarbitrable claims and the relative strength of the claims, to the extent this can be assessed ex ante. See, e.g., Lake Commc'ns., Inc. v. ICC Corp., 738 F.2d 1473, 1477 (9th Cir. 1984), overruled on other grounds by Nghiem v. NEC Elec., Inc., 25 F.3d 1437, 1441 (9th Cir. 1994).

Courts also take into consideration the desire to avoid "inconsistent findings" or "inconsistent results." Bischoff v. DirecTV, Inc., 180 F.Supp.2d 1097, 1114-15 (C.D. Cal. 2002). This is easier said than done, however, for two reasons. First, it is difficult to assess in advance whether the result of one proceeding will have any collateral estoppel effect in the other. See Byrd, 470 U.S. at 223 ("The collateral-estoppel effect of an arbitration proceeding is at issue only after arbitration is completed...."); Collins v. D.R. Horton, Inc., 505 F.3d 874, 882 (9th Cir. 2007) ("arbitrators possess broad discretion to determine when they should apply offensive non-mutual collateral estoppel"); Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1132-34 (9th Cir. 2000) (arbitrator decides whether prior arbitral award or judgment should have preclusive effect); Clark v. Bear Stearns & Co., Inc., 966 F.2d 1318, 1321 (9th Cir. 1992) (Applying collateral estoppel to an arbitration proceeding requires "an examination of the record, if one exists, including any findings of the arbitrators, " and "[t]he party asserting preclusion bears the burden of showing with clarity and certainty what was determined by the prior judgment... [by introducing] a sufficient record of the prior proceeding to enable the trial court to pinpoint the exact issues previously litigated."); American Home Assur. Co. v. Vecco Concrete Constitutional. Co., Inc., 629 F.2d 961, 964 (4th Cir. 1980) ("arbitrator's findings will not be binding [in subsequent trial] as to those not parties to the arbitration"); Vandenberg v. Superior Court, 21 Cal.4th 815, 831-33 (1999) (considering "whether private arbitration awards should have nonmutual collateral estoppel effect" and concluding that because "private arbitration is a contractual proceeding whose scope and effect are defined and limited by the parties' consent, " "the public policy reasons against applying the collateral estoppel doctrine well outweigh those in favor of doing so."); G. Edward Fletcher III, Learning to Live with the Federal Arbitration Act - Securities Litigation in a Post-McMahon World, 37 Emory L.J. 99, 116-22 (1988) (discussing relationship between collateral estoppel and "the ordering problem, " i.e., whether arbitration should precede trials of nonarbitrable claims); see generally G. Richard Shell, Res Judicata and Collateral Estoppel Effects of Commercial Arbitration, 35 UCLA L. Rev. 623 (1988). If an arbitrator's ruling or a court's judgment has an issue preclusive effect in the other forum, then this will reduce the chance of inconsistent results. But without knowing whether one forum's judgment will have an issue preclusive effect in the other forum - before deciding whether to grant a stay - a desire to avoid inconsistent results does not counsel in favor of one forum preceding the other forum.

The second reason it can be difficult to avoid inconsistent results when related issues are submitted both to an arbitrator and a court is that the two proceedings are governed by different procedural and evidentiary rules, and indeed by different substantive legal standards. See Local 1445, United Food & Commercial Workers Int'l Union v. Stop & Shop Cos., 776 F.2d 19, 22 (1st Cir. 1985) ("Arbitrators are not required to follow principles of contract law or judicial precedent."). It should not be surprising that these differences will sometimes ...


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